Carbon Offsets: A Tool to Carbon Offsets: A Tool to Help Slow Climate Help Slow Climate Change (and Finance Change (and Finance Facility Improvements??)Facility Improvements??)

Jennifer ClymerJennifer Clymer

February 14, 2008February 14, 2008

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AgendaAgenda

Why be concerned about climate Why be concerned about climate change?change?

What can be done to lessen What can be done to lessen impact of climate change?impact of climate change?

What role do carbon offsets play?What role do carbon offsets play?

How can offsets help pay for How can offsets help pay for facility improvements?facility improvements?

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Climate Change in Central Climate Change in Central TXTX

Weather ImpactsWeather Impacts

Water Resource ImpactsWater Resource Impacts

Human Health ImpactsHuman Health Impacts

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Weather Impacts in Central Weather Impacts in Central TXTX

Temperature will increase year-roundTemperature will increase year-round– In summer, highs could increase 3-7°FIn summer, highs could increase 3-7°F

July heat index could rise 10-25°FJuly heat index could rise 10-25°F– In winter, lows could increase 3-10°FIn winter, lows could increase 3-10°F

Fewer freezes expectedFewer freezes expected

Precipitation changes are less clearPrecipitation changes are less clear– Changes in average precipitation uncertainChanges in average precipitation uncertain– More frequent flooding with longer droughtsMore frequent flooding with longer droughts

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Water Impacts in Central Water Impacts in Central TXTX

Coastal sea level rise of 1.5-4 ft. Coastal sea level rise of 1.5-4 ft. could lead to inland migrationcould lead to inland migration

Increased evaporation of surface Increased evaporation of surface water up to 35%water up to 35%– Less water available for groundwater Less water available for groundwater

rechargingrecharging– Less water available for crop irrigationLess water available for crop irrigation

Crop yields could be reduced by up to 68%Crop yields could be reduced by up to 68%

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Health Impacts in Central Health Impacts in Central TXTX

Increased heat and pollution Increased heat and pollution related illnesses and deathsrelated illnesses and deaths– More intense heat wavesMore intense heat waves– More Ozone Action DaysMore Ozone Action Days

Increased insect related illnesses Increased insect related illnesses and deathsand deaths– Expanded range/duration for Expanded range/duration for

mosquitoes and other disease-mosquitoes and other disease-carrying insectscarrying insects

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Two Ways to Combat Two Ways to Combat Climate ChangeClimate Change

Reduce personal carbon footprint Reduce personal carbon footprint (and potentially generate offsets)(and potentially generate offsets)– Turn off the lightsTurn off the lights– Get out of the carGet out of the car– Reduce, reuse, and recycleReduce, reuse, and recycle

Help reduce others’ carbon Help reduce others’ carbon footprints (aka, buy offsets)footprints (aka, buy offsets)

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What is a Carbon Offset?What is a Carbon Offset?

1 offset = 1 metric ton1 offset = 1 metric ton** of of greenhouse gases (GHGs) that greenhouse gases (GHGs) that are are voluntarily voluntarily kept out of the kept out of the atmosphereatmosphere– Reductions must be “beyond Reductions must be “beyond

business-as-usual” business-as-usual”

** 1 metric ton = 1.1 U.S. ton 1 metric ton = 1.1 U.S. ton

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Three Ways to Create Three Ways to Create OffsetsOffsets

Reduce the burning of fossil fuels Reduce the burning of fossil fuels (oil, gas, coal)(oil, gas, coal)

Store carbon in plants or Store carbon in plants or undergroundunderground

Minimize the amount of GHGs Minimize the amount of GHGs leaked to the atmosphereleaked to the atmosphere

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Projects that Reduce Projects that Reduce Fossil Fuel CombustionFossil Fuel Combustion Renewable Energy/FuelsRenewable Energy/Fuels

– e.g., wind farm, landfill gas, biofuelse.g., wind farm, landfill gas, biofuels

Energy EfficiencyEnergy Efficiency– e.g., green building, ENERGY STARe.g., green building, ENERGY STAR®®

Industrial EfficiencyIndustrial Efficiency– e.g., cogeneration, operational upgradese.g., cogeneration, operational upgrades

Transportation EfficiencyTransportation Efficiency– e.g., signal synchronization, mass transite.g., signal synchronization, mass transit

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Projects that Store Projects that Store CarbonCarbon

Tree PlantingTree Planting Avoided DeforestationAvoided Deforestation

Improved Agriculture PracticesImproved Agriculture Practices– e.g., reduced fertilizer use, no tille.g., reduced fertilizer use, no till

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Projects that Reduce Projects that Reduce GHG LeakageGHG Leakage

Natural gas pipeline Natural gas pipeline improvementsimprovements

Industrial gas processing and Industrial gas processing and handling improvementshandling improvements– e.g., reducing SFe.g., reducing SF66 leakage from leakage from

electrical transformers, reducing electrical transformers, reducing HFC leakage from A/C units HFC leakage from A/C units

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Offsets Must Meet Offsets Must Meet Certain Quality CriteriaCertain Quality Criteria

Must be a real, measurable GHG Must be a real, measurable GHG reductionreduction

Must not be required by lawMust not be required by law

Must be beyond business-as-usualMust be beyond business-as-usual

Must not be financially or otherwise Must not be financially or otherwise feasible without offset salesfeasible without offset sales

Must not be double-countedMust not be double-counted

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Benefits of Creating Benefits of Creating OffsetsOffsets

Can provide funding for energy-Can provide funding for energy-efficient facility upgradesefficient facility upgrades– Less demand for energy = less demand Less demand for energy = less demand

from power plantsfrom power plants– Growing demand for new offset projectsGrowing demand for new offset projects

Can provide good PRCan provide good PR– Promote proactive environmental Promote proactive environmental

initiatives (although beware increased initiatives (although beware increased scrutiny of project)scrutiny of project)

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Energy Efficiency ExampleEnergy Efficiency Example

HVAC replacement + reflective HVAC replacement + reflective roofroof

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Energy Efficiency Example Energy Efficiency Example (cont.)(cont.)

Saved 291 kW of peak demand Saved 291 kW of peak demand and 387,000 kWh of energy and 387,000 kWh of energy

Offset revenue = $29,500 over 15 Offset revenue = $29,500 over 15 years at $10/metric ton years at $10/metric ton

vs.vs. Austin Energy rebate = $114,500Austin Energy rebate = $114,500

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Benefits of Buying Benefits of Buying OffsetsOffsets

Cost-effectively reduce GHG Cost-effectively reduce GHG emissions when can’t reduce emissions when can’t reduce internallyinternally

Provide flexibility for compliance Provide flexibility for compliance programsprograms

May have secondary environmental May have secondary environmental and/or social benefitsand/or social benefits

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Wide Range of Offset Wide Range of Offset PricesPrices

Offset prices range from $0.50-Offset prices range from $0.50-$78/ metric ton$78/ metric ton– Low end prices for Chicago Climate Low end prices for Chicago Climate

Exchange offsetsExchange offsets– High end prices for Kyoto offsetsHigh end prices for Kyoto offsets

Conservatively expect to pay Conservatively expect to pay ~$10/metric ton for a high ~$10/metric ton for a high quality, U.S.-based offsetquality, U.S.-based offset

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U.S. Offsets are U.S. Offsets are Relatively CheapRelatively Cheap

$18

$40

$16

$12$10

$9 $8

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

EU Africa Australia/Other Asia U.S. Canada Latin America

Offset Project Location

Off

set

Pri

ce (

$/m

etri

c to

n)

Source: Modified from Hamilton et al., 2007. State of the Voluntary Carbon Markets 2007: Picking Up Steam. Published by Ecosystem Marketplace and New Carbon Finance, July 18.

2020

Demand for Offsets is on Demand for Offsets is on the Risethe Rise 11stst recorded carbon offset in 1989 recorded carbon offset in 1989

Market began picking up steam after Market began picking up steam after U.S. rejected Kyoto in 2001U.S. rejected Kyoto in 2001– Since 2002, number of offset providers has Since 2002, number of offset providers has

jumped 220%jumped 220%

And really took off in past few yearsAnd really took off in past few years– B/t 2005-2006, offset sales skyrocketed by B/t 2005-2006, offset sales skyrocketed by

nearly 200%nearly 200%– B/t 2006-2007, sales expected to at least B/t 2006-2007, sales expected to at least

doubledouble

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Regulations will Further Regulations will Further Increase Demand in U.S.Increase Demand in U.S.

3 regional cap-and-trade programs3 regional cap-and-trade programs– Regional Greenhouse Gas InitiativeRegional Greenhouse Gas Initiative– Western Climate InitiativeWestern Climate Initiative– Midwestern Greenhouse Gas AccordMidwestern Greenhouse Gas Accord

Numerous state carbon regulationsNumerous state carbon regulations– CA, OR, MA, FL, etc.CA, OR, MA, FL, etc.

Imminent federal carbon regulationImminent federal carbon regulation– Demand for offsets in the 1Demand for offsets in the 1stst year of year of

leading cap-and-trade proposal could be leading cap-and-trade proposal could be over 30X the current volume of over 30X the current volume of offsets!offsets!

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RecommendationsRecommendations

Evaluate your facilities for GHG Evaluate your facilities for GHG savings potentialsavings potential– Before you can reduce, must measureBefore you can reduce, must measure

Make sure they’re certified to a non-Make sure they’re certified to a non-proprietary standard to ensure qualityproprietary standard to ensure quality– VCS, CCAR, Gold Standard, CDMVCS, CCAR, Gold Standard, CDM

Record offset transactions with a GHG Record offset transactions with a GHG registry to ensure creditregistry to ensure credit– ERT GHG Registry, CCAR, CCXERT GHG Registry, CCAR, CCX

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QUESTIONS??QUESTIONS??

jennifer.clymer@austinenergy.comjennifer.clymer@austinenergy.com

322-6188322-6188